Corporate governance is a pretty dry subject in the best of times, but it just may become a bit more interesting, particularly if we have gotten it wrong and it turns out to be the source of the current worldwide economic crisis.
The Occupy Wall Street protests clearly show the people's frustration with high unemployment and corporate greed. People are rising up to express dissatisfaction with the status quo and the government's ineffectiveness in addressing it. Protests like these are what's great about America, yet these protesters can only define the desired end state (jobs and security), not the means of achieving it. This economic crisis is stuck between tax cuts and a bailout, and no systemic changes have been proposed that can fundamentally address the underlying issues.
The book Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL by Roger L. Martin is a worthwhile read with some surprising insights about what's wrong with our companies and the economy. It is convincing and provides a view on necessary governance and systemic changes. I am not sure where the political will for his kind of change will come from, unless perhaps the protesters align with Martin's remedies. Now that would create the political will for real change.
Martin attacks the belief that the role of a corporate board is to maximize shareholder value, and he cites persuasive evidence and arguments to support his alternative. As examples, he uses companies like Apple, P&G, and J&J, which put customers first, ahead of shareholders, yet consistently deliver the best shareholder rewards. He also uses comparisons to the National Football League to show the structural problems we have in our companies and the economy. Compensation philosophy, short-term trading, and the ranking of shareholders among stakeholders are all in his sights.
He describes the “real world,” which is the world of customers, employees, and value creation, along with the “expectations world,” made up of the stock market and hedge funds. He shows how the intermingling of the two worlds, along with the “maximizing shareholder value” mantra, is the core problem. He illustrates this effectively with an NFL comparison: Giving CEOs stock-based compensation is the same as letting NFL players bet on the outcome of their games. If that occurred in the NFL, it wouldn't be long before professional football found itself in the same kind of mess as our companies.
Mixing the “real world” with the “expectation world” leads to volatility and corruption. Professor Martin offers a solution which is one of the best I have seen, and it needs to be thoroughly explored.
Supply chain professionals are clearly centered in the real world and know that putting customers first and creating real value is the right thing to do. Why don't we align our companies and economy to this? Why don't we penalize (through taxation, regulation, or both) speculation that destroys real world value creation? After reading Dr. Martin's book, it seems obvious to me.